Four Whitefish city workers, including three from the city planning and building department, were indefinitely laid off last week. The action follows the layoff of a building inspector last year.

Declining planning and building fees, the $400,000 payment in the Walton steep-slopes case and a higher level of property tax protests and delinquencies were blamed for the city's financial problems.

"These three factors and other smaller impacts, in combination, are so significant that it now appears we will end FY2010 with a negative cash balance in the general fund," city manager Chuck Stearns told city councilors, department heads and staff in a Jan. 26 memo. "We can do interfund borrowing or short-term borrowing to avoid that situation, but the dire situation means I can wait no longer to take some significant actions."

While the laid-off employees will continue to collect vacation pay, the city expects to save up to $87,000. In addition, city workers are being asked to take one unpaid furlough day between now and June 30 to save $26,500. The furloughs are voluntary because of collective bargaining contracts, said Stearns said, who plans to take two furlough days.

Other stopgap financial measures include an immediate hiring freeze, a freeze on out-of-state travel, and a freeze on equipment purchases unless they are associated with the new Emergency Services Center, the downtown streetscaping project and other city construction projects, Stearns said.

Stearns said he prefers not to use across-the-board cuts because that can penalize well-run programs, services and departments. He also did not rule out short-term borrowing, preferably from other city funds.

Although systemic problems of 'revenues not matching expenditures' exist, Stearns cited the judgment against the city in the Walton case as a major source of the city's cash-flow problems.

"Without the Walton judgment, I think we could have made it to June 30 without such significant actions," he said, "but that may have also just been delaying inevitable actions."

The city has not gone far enough, councilor Phil Mitchell said at the council's Feb. 1 meeting. The city could save $26,000 from the staff furloughs "if they take them," which he called "peanuts." The negative cash balance in June will roll into the next fiscal year and cause future problems, he said.

Several councilors said they did not favor using interfund borrowing to address the problem.

Stearns noted that further cutbacks could impact the level of city services. He said police chief Bill Dial has already cut back on overtime, which could mean a lot of special events can not be held.

City attorney John Phelps said the Montana Municipal Insurance Authority covered the attorney costs in the Walton case but not the damages. Since then, they have taken an "about-face" and now cover land-use lawsuits, he said. He said he will continue talks with them, but he doesn't expect a decision in the city's favor.

Councilor Chris Hyatt said the city should stop using the Walton case as an excuse for its financial problems and move on to more important problems.

Assistant city manager and finance director Rich Knapp reported that diminishing cash is a major concern for the first half of the fiscal year. The city's $295,746 cash balance for December is low and trending lower, he said.

"Property tax collections, the city's key revenue source, came in 6 percent less than expected, based on historic trends," he said, leaving the city about $82,000 behind.

Fees for services were also down, particularly in the planning department where planning fees are at 14 percent of budget and zoning fees are at 27 percent of budget.

"By June 30, a combined shortfall of $110,000 is projected in these two revenue sources," Knapp said.

Other revenue sources that were down include resort tax, 16 percent below the same time period last year, and tax-increment financing (TIF) collections, which were about $350,000 less than expected.

While the building codes, solid waste and wastewater funds "cause the most concern," Knapp said, street fund expenditures ran higher than in previous years due to $152,000 in chip-sealing projects, and the parks and recreation fund was carrying a negative cash balance.

Knapp projected a $150,000 budget shortfall in the building codes fund, and he called the reducing cash reserves in the solid waste fund "an urgent issue." Budget constraint in the wastewater fund improved net operational revenue, but the budget "is extremely tight with not much room for the unexpected," he said.